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Adam shows that 2018 has the potential to be a very big year for gold investment demand. Here’s the details…

by Adam Hamilton of Zeal LLC

The gold miners’ stocks have huge upside potential in 2018, likely the best among stock-market sectors. They really lagged gold last year, so a major mean-reversion catch-up rally is coming. The gold miners are universally ignored and deeply undervalued relative to the metal which drives their profits. And gold itself is likely to power dramatically higher this year as euphoric record-high stock markets inevitably start to falter.

Gold has always been the leading contrarian investment, tending to move counter to stock markets. So not surprisingly investment demand stalled last year as the extreme taxphoria-fueled stock surge blasted relentlessly higher. When stock markets apparently do nothing but rally indefinitely, investors feel no need to prudently diversify their portfolios with the anti-stock trade gold. So they ignored the yellow metal in 2017.

That was certainly evident in the leading proxy for gold investment demand, the flagship American GLD SPDR Gold Shares gold ETF. Its physical gold bullion held in trust for shareholders merely grew 1.9% or 15.3 metric tons in 2017. That was a colossal slowdown from 2016’s massive 28.0% or 179.8t growth! Given the weak gold investment demand last year, it’s rather impressive how well gold managed to perform.

Big up-years in the stock markets sometimes drive big down-years in gold, and 2013 was a key case in point. That year extreme Fed easing catapulted the benchmark S&P 500 broad-market stock index (SPX) an amazing 29.6% higher. Exuberant investors wanted nothing to do with gold, and dumped it in droves. So the gold price plummeted 27.9% in 2013, leaving deep psychological damage that persists to this day.

In 2017 the SPX soared 19.4% on hopes for big tax cuts soon from the newly-Republican-controlled US government. Extreme complacency, greed, euphoria, and even hubris ran rampant among investors. It was a perfect scenario to see gold crushed again on a mass exodus of investor capital. Yet despite the stock markets enjoying their best year since 2013, gold was still able to achieve a strong 13.2% gain in 2017!